On-Premise vs. Cloud vs. Hosted Services: Understand the Difference

Today’s businesses understand the importance of digital transformation, which is why the global digital transformation market is projected to reach $1,009.8 billion by 2025, up from $469.8 billion in 2020.

But the sheer range of digital transformation options and the technical jargon associated with them can be overwhelming, especially for small business owners who have a lot on their plate.

In this article, we are taking a close look at three terms all decision-makers who have embarked or are about to embark on a digital transformation journey are guaranteed to encounter: on-premise, cloud, and hosted.

Understanding the differences between these three hosting options for technology services, including applications and IT infrastructure components, can help you make the right choice for your business and prevent you from spending money on a solution that can’t meet all your current and future needs.

What Is an On-Premise Service?

An on-premise service is any technology service that you run on your own server. In the past, most services were hosted on-premises because there were not many suitable alternatives.

When you host a service on your own server, you’re in control of the hardware, the operating system, the actual service, associated data, configuration, security, and more.

Having so much control can be both good and bad, depending on your requirements and capabilities. For example, financial institutions that process highly sensitive data need to be in complete control of their information processing systems to maintain compliance with stringent regulations and repel the most dangerous cybersecurity threats.

For smaller organizations with limited resources, however, all the control associated with on-premise services can be a burden because it forces them to hire someone with the right skillset to manage them.

On top of ongoing maintenance costs, a large upfront capital expenditure is typically required to deploy an on-premise service. Again, large organizations that can leverage economies of scale can justify spending a large sum of money to deploy an on-premise service more easily than small and medium-sized businesses.

Main benefits of an on-premise service:

  • Full control over your IT infrastructure
  • Can be heavily customized to meet your needs
  • Lower long-term costs
  • Doesn’t always depend on an internet connection

Main downsides of an on-premise service:

  • High upfront costs
  • Potentially costly maintenance
  • Requires hands-on IT staff involvement
  • Limited scalability
  • Greater potential for data loss

What Is a Cloud Service?

The advent of public cloud technology has made it possible for businesses to avoid the large upfront capital expenditure associated with the deployment of an on-premise service by using someone else’s IT infrastructure to host it.

That someone else is typically a major cloud provider like Microsoft, whose cloud computing service is called Azure, or Amazon, whose cloud computing service is called Amazon Web Services.

It’s the provider’s job to manage the cloud IT infrastructure that customers rent on a subscription basis. Because leading providers employ some of the most experienced and skilled professionals in the world to manage their massive data centers, their customers can rest assured, knowing that their cloud services are in good hands.

Cloud performance expectations are defined in a cloud service-level agreement (SLA), which is an agreement between a cloud service provider and a customer, whose purpose is to ensure that a minimum level of service is maintained at all times.

In addition to being cost-effective, cloud services are also virtually infinitely scalable, which makes them a great choice for businesses that deal with seasonal demand.

Main benefits of a cloud service:

  • No large capital expense is necessary
  • Lower maintenance costs
  • Can be easily scaled up or down
  • Enhanced security and data protection
  • Geographic redundancy

Main downsides of a cloud service:

  • Danger of vendor lock-in
  • No control over the server hardware
  • Potential compliance challenges

What Is a Hosted Service?

Hosted services are even more convenient than cloud services because their providers are responsible not only for the underlying servers but also for the software that runs on them.

The software-as-a-service (SaaS) licensing and delivery model has become synonymous with hosted services, allowing end-users (both businesses and individuals) to easily connect to and use cloud-based apps over the internet.

Examples of popular SaaS tools that organizations large and small rely on every day include Trello, Slack, Hubspot, Freshbooks, Zoom, Google Workspace, Microsoft 365, or Salesforce, just to name a few.

Hosted services are perfect for small businesses because they can be deployed with a few simple clicks and used without little to no technical knowledge. The provider is responsible for upgrading and configuring hardware, installing updates, and generally ensuring that everything works smoothly.

The downside to this convenience is that not all hosted services give their users the same level of control over their data. That’s why it’s critically important to carefully read the terms of service when signing up for a SaaS tool.

Main benefits of a hosted service:

  • Budget-friendly pricing model
  • Little to no maintenance is required
  • Many hosted services to choose from
  • Can be accessed from anywhere
  • Scalability, flexibility, security

Main downsides of a hosted service:

  • Danger of vendor lock-in
  • Loss of control
  • Limited customization

How to Choose Between Hosted vs. Cloud vs. On-Premise Services

Now that you understand the difference between hosted, cloud, and on-premise services, it’s time for us to explain how to choose between them.

You’re Happy with Your Existing On-Premise Infrastructure

If you’re happy with your existing on-premise infrastructure and confident in your ability to maintain it, then it makes sense to continue using it since one of the biggest downsides of this model is the large upfront investment it requires.

Of course, there’s nothing stopping you from using on-premise services alongside cloud or hosted services. Just know that such an arrangement is guaranteed to greatly increase your defense perimeter, giving attackers more entry points to target.

Because even the best on-premise infrastructure eventually needs to be upgraded to continue serving its intended purpose well, you need to plan ahead and budget accordingly otherwise you might be hit with a surprise expense when you least expect it.

You’re Not Happy with Your Existing On-Premise Infrastructure

If you’re not happy with your existing on-premise infrastructure because you find it to be too expensive or too difficult to maintain and secure, then you should start by evaluating your IT needs to determine which of the two available alternatives is better for you.

Generally, cloud services like Amazon Web Services or Microsoft Azure are suitable for businesses that don’t want to maintain in-house servers anymore but still would like to have as much control over their software environment as possible. Cloud servers provide the necessary networking components and capacity to run even the most demanding business services, and there are many Managed Service Providers (MSPs) that can help with their deployment and management.

Hosted services, on the other hand, can be recommended to businesses that would like to simplify their IT infrastructure as much as possible, reducing it into a handful of predictable monthly expenses.

You Don’t Have Any Existing On-Premise Infrastructure

If you don’t have any existing on-premise infrastructure then you need to decide which of the three options is best for you based on their advantages, disadvantages, and inherent characteristics.

Businesses that have never tackled a challenge like this before should partner with an IT provider and borrow its experience and expertise to determine the optimal path forward based on a detailed assessment of current and future needs.

Businesses with limited IT budgets and expertise typically gravitate toward cloud and hosted services, while larger organizations maintain on-premise capabilities.

What’s the difference between cloud-based hosting and in-house hosting?

The difference is in who owns and operates the hosting infrastructure. For example, cloud-based web hosting servers are owned and managed by the provider of cloud hosting services, while in-house web hosting servers are owned and managed by the business itself.

Is cloud hosting the same as cloud computing?

The term cloud computing refers to the delivery of all kinds of services through the public internet, and hosting is one of them.

How is the cloud different from hosted IT services?

A hosted IT service, such as Gmail, is essentially a centrally hosted software application that’s delivered over the public internet, typically on a subscription basis. The cloud is the term used to refer to the underlying IT infrastructure on which hosted IT services run.

Is hosting a cloud service?

Hosting, a service that provides storage and computing resources for the accommodation of one or more websites, can be a cloud-based service, but hosting can also be


Ultimately, the choice between on-premise, cloud, and hosted services should be based on what will work best for your business—not someone else’s. Each of the three options has its own set of advantages and disadvantages, so you need to know what your priorities are. An experienced MSP like us at Aligned Technology Solutions can help you make the right choice so that you can achieve your digital transformation goals. Contact us for more information.

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